Best news out of India today. https://twitter.com/bloombergquint/status/1254703759088746496

Say banks automatically enhance the W/c limit of all SME borrowers by 20%. This additional part has a full loss absorption guarantee. Banks have nothing to lose. In fact, they have better chances of collecting on the original 100% if more SMEs survive. (1/n)

Now 3L cr is 1.4% of GDP. Since RBI is doing all kinds of TLTRO, here’s one idea. RBI tells banks, I’ll give you repo funding for the extra 20% if you take govt guarantee for only the first half of the loss. Thus the RBI allows firepower to increase by drawing banks back to risk.

Now @dugalira is right. Complexity at stage 1 will kill a clean guarantee. So I propose that cheap refinancing by the RBI — in lieu of banks taking some skin in the 20% extra credit they write — be sequential.

@gautamchhugani’s suggestion that the government pays bank a commission to scout for borrowers (since they aren’t underwriting credit risk anyway) is also interesting. SBI and fellow avengers can line up 3L crore by tomorrow morning!

MSMEs are the missing middle of India’s economy. Missing because nobody talks about them except in seminars. Policies seldom actually help them. But they keep everything going. So to the 3L cr small business credit guarantee, I say, god speed. That’s all for this thread. Bye.